IOL Chem and Pharma Q2 FY26 earnings call

Where management's figures differ from the filing

• EBITDA (Q2 FY26): said ₹64 cr, margin 11.1% (+33.3% YoY); filed ₹57.08 cr, margin 10.1% (+37.3% YoY). Stated EBITDA includes other income of ₹6.88 cr; filed figure is computed excluding other income (₹57.08 + ₹6.88 ≈ ₹64 cr).

What moved the numbers, as management explained it

• Volume recovery and stable product mix drove 7.9% revenue growth; capacity utilization of other APIs also increased in the quarter.
• Improved operating leverage and cost efficiency expanded EBITDA margin by 212 bps YoY to 11.1%.
• Punjab floods raised power and fuel cost by ₹7-8 cr (about 1% margin hit); expected to drop ₹5-6 cr in Q3 as one-off. (one-off)
• Shift from domestic to regulated customers supported better price realization and stable demand, lifting mix-driven margin.
• Chemicals EBIT margin improvement partly aided by inventory gains at lower earlier prices, alongside buying negotiations. (one-off)
• Employee benefit expense rose about ₹6 cr from upfront year-end variable pay/incentives in Q2; not expected in Q3/Q4. (one-off)

The numbers management led with

• Paracetamol capacity utilization: 55-60% in H1 FY26; targeting 65% by March 2026 end
• Punjab flood fuel cost impact: INR7-8 crores in Q2 FY26; expected to reduce by INR5-6 crores in Q3 FY26
• Domestic vs Export revenue contribution: Domestic at 76% in H1 FY26 vs 74% in Q1 FY26
• Annual capex run-rate: INR150-200 crores per year (40% maintenance, 60% growth); INR60 crores deployed in H1 FY26

Guidance on this call

Filed figures are summed from the company's own quarterly results for the whole period (EBITDA excludes other income); where one sits against what was guided is arithmetic, not a judgement.

What changed since the Fri 8 Aug 2025 call

Guided on earlier calls, and what was filed

Filed figures are summed from the company's own quarterly results for the whole period (EBITDA excludes other income); where one sits against what was guided is arithmetic, not a judgement.

By business

Balance sheet, capex and funding

• Capex ₹60 cr used in H1 FY26 against full-year guidance of ₹150-200 cr; H2 capex around ₹100 cr.
• FY27 capex also planned at ₹150-200 cr; split 40% maintenance/infrastructure and 60% growth.
• Balance sheet described as strong with minimum leverage and healthy liquidity.
• Post-tax cash profit grew 31.1% YoY to ₹51.5 cr in Q2 FY26.
• Land parcel near Chandigarh-Bathinda Highway acquired; 2-3 regulatory approvals pending, expected in 2 quarters.
• New UK subsidiary IOL Pharmaxis UK Limited incorporated for European customer proximity.

The industry, as management sees it

Management views pharma demand as stable and growing, with non-Ibuprofen APIs seeing good traction; however, the broader chemicals segment has been facing pricing pressure for 3-4 quarters with limited visibility on recovery, though volume growth has been compensating. The industry is also seeing heightened regulatory engagement with EU GMP audits becoming routine.

Risks management named

• Chemicals segment pricing pressure has persisted 3-4 quarters with limited visibility on recovery
• Punjab floods elevated power and fuel costs by INR7-8 cr in Q2
• Sitagliptin and Fenofibrate face intense market price competition delaying commercialization
• U.S. FDA observations on Levetiracetam and Fenofibrate DMFs still pending closure
• Year-end variable pay of ~INR6 cr front-loaded in Q2 distorts employee cost run-rate

Not answered directly

• Chemicals segment pricing recovery timing
• Specific export volume targets
• Therapeutic area focus for API pipeline
• Apixaban commercialization timeline

Asked for a number, answered without one

• FY26 full-year revenue growth achievement: Hopeful of reaching 10-12% in H2 but may fall short for the full year; expecting to get close to that level.
• Sitagliptin Phosphate Monohydrate commercial plans: Not pursuing commercial production as market price is not even the cost of production; R&D scale only for now.
• US FDA approval commercial impact timing: Impact will come with regular commercial supply to US customers over passage of time, not instantly.
• Specific Pantoprazole Process-III volume targets in CEP compliant markets: Europe is the target market; customers exist and samples sent, approval process underway.

Every question, with its answer

1. 1. Revenue mix and margin trajectory

   Riya Jain, SGA Finance

   Question. How is the revenue mix between Ibuprofen and non-Ibuprofen APIs shaping up in H1 FY26? Which molecules are the top contributors within this basket, and how do you see the composition evolving over the next few years? What is the trajectory of EBITDA and PAT margins over the next 2-3 quarters given chemicals pricing pressure and pharma ramp-up costs?

   Answer, Pardeep Khanna, Chief Financial Officer. Within pharma, Ibuprofen is 62% and other APIs are 38%. Total pharma is 59% of revenue and chemicals is 41%. Ibuprofen remains the top contributor. We expect pharma mix to evolve to 50% Ibuprofen and 50% other pharma products over coming years. On margins, volume growth is coming from non-Ibuprofen portfolios; we cannot comment on pricing trends but expect to continue volume-led growth. We are maintaining the EBITDA margin target of 13-14% discussed in the last quarter for the remaining H2.

   Follow-up. Regarding the recent EDQM CEP for Pantoprazole Sodium Process-III, how do you plan to capitalize on this approval? Are there specific geographies, volume targets or commercial strategies to scale this molecule in CEP-compliant markets?

   Answer. This is an amendment to our existing Pantoprazole CEP after incorporating a small process change. We have customers where the approval process has already started. Europe is the target market; samples have been sent and approvals are in progress.

2. 2. EBITDA growth drivers and flood cost impact

   Dhiraj, RJ Investments

   Question. Can you walk us through the key drivers behind the 33% EBITDA growth and PAT growth this quarter? How much was volume-led versus margin-led, and what role did cost optimization and product mix play? On the sequential decline in profitability due to fuel costs post-Punjab flood, can you quantify the margin impact and clarify whether this normalizes in Q3 or persists into H2?

   Answer, Rakesh Mahajan, Advisor. The YoY growth is a combination of higher volumes, stable prices, improved product mix, and a shift from domestic customers to regulated customers. Capacity utilization of other APIs also increased. On the flood impact, power and fuel cost rose by INR7-8 cr during the quarter because rice husk (used for captive power and steam) became unusable due to moisture from heavy rains, forcing use of costlier materials and electricity board power. We expect this to normalize in the current quarter.

3. 3. Paracetamol demand outlook and chemicals pricing

   Abu Rafe, Individual Investor

   Question. Paracetamol has seen relatively weak demand over recent quarters. What is the current outlook for paracetamol, and how do you see the coming calendar year in terms of demand and growth? Separately, acetic anhydride and ethyl acetate prices have been trending lower. Are you seeing any signs of pricing recovery, and do you expect volume growth in coming months?

   Answer, Rakesh Mahajan, Advisor. Paracetamol industry demand is not increasing, but IOL's own demand is rising. We expanded paracetamol capacity from 3,600 MT to 11,800 MT in March 2025 and have already reached 55-60% utilization in the first six months, crossing last year's full-year capacity. Prices are not up to the mark but demand is there for IOL. On acetic anhydride and ethyl acetate, both are running at near 100% capacity utilization; acetic anhydride is 60% captively consumed, so merchant availability will reduce as paracetamol output grows. We expect prices for the remaining half to remain more or less the same.

4. 4. Chemicals margin drivers and volume growth breakdown

   Maulik, B&K Securities

   Question. Chemicals segment EBIT margin has improved YoY. What drove this - cost efficiencies, lower input prices, or inventory gains? Is the input cost benefit a one-off? On volume growth - was it driven only by paracetamol or did other products contribute? And what is the current pricing for paracetamol and Ibuprofen? Could you also clarify the 62%/38% revenue split - was that between Ibu and non-Ibu?

   Answer, Pardeep Khanna, Chief Financial Officer. On EBITDA margin, we target 13-14% but could not achieve it in the quarter due to the fuel cost spike. H1 FY26 EBITDA margin improved to 11.8% from 10.2% in H1 FY25 and we hope to do better in coming quarters. Chemicals margin improvement was helped by better buying negotiations and some inventory gains from earlier low-priced stock. We are also negotiating directly with Chinese manufacturers. Beyond paracetamol, Clopidogrel, Pantoprazole and a few other non-API products also contributed to non-Ibuprofen volume growth. Paracetamol and Ibuprofen prices remain largely unchanged from last quarter with a slight dip in paracetamol. The 62%/38% split is Ibuprofen versus other APIs within pharma; total pharma is 59% and chemicals 41%.

5. 5. Fuel cost margin impact and paracetamol utilization

   Vignesh Iyer, Sequent Investments

   Question. What percentage of margin was impacted by the higher fuel cost in Q2? Without the fuel spike, would margins have been better than Q1? Can we expect normalcy in Q3 and Q4? And what was the utilization of the new paracetamol facility in Q2 and how do you see it by year-end?

   Answer, Pardeep Khanna, Chief Financial Officer. The fuel cost impact was about 1% on margins, amounting to INR7-8 cr in Q2. We expect power and fuel costs to reduce by INR5-6 cr in the current quarter and return to near-normal. Paracetamol utilization in Q2 was 55% and we expect to reach around 65% by March 2026 end.

6. 6. Capex guidance and split

   Jainam Ghelani, Svan Investments

   Question. What is the capex guidance for FY26 and FY27, and where do you wish to expand? How much of the capex is maintenance versus growth? And given current pricing of Ibuprofen, Metformin and Paracetamol, what is the sustainability of the capex plan?

   Answer, Pardeep Khanna, Chief Financial Officer. Capex plan for the current year is INR150-200 cr and we expect similar INR150-200 cr for next year. It covers growth capex, infrastructure, land, new software and automation. We have used about INR60 cr in H1 FY26 with another ~INR100 cr planned for H2. Maintenance and infra capex is 40% and growth capex is 60%. Ibuprofen and Paracetamol prices are unchanged from last quarter; Metformin has seen a slight dip following lower raw material costs.

7. 7. Regulatory updates and pipeline strategy

   Richa Shah, SRP Associates

   Question. Can you provide an update on Fenofibrate and Levetiracetam regulatory progress, particularly given recent DMF observations from the U.S. FDA? What is the status of the EU GMP audit scheduled for November? With the EDQM approval for Sitagliptin Phosphate Monohydrate, how are you positioning this molecule commercially? Which therapeutic areas are you focusing on for the API pipeline?

   Answer, Kushal Kumar Rana, Director Works. On Levetiracetam and Fenofibrate DMFs, we received observations from FDA and responded in time; we are awaiting next communication from the authority. EU GMP inspection concluded last Saturday over 6 days with no major observations, only recommendations. For Sitagliptin, we are not pursuing it commercially because market price is not even at our cost of production. Our pipeline selection is based purely on demand-supply gap in the market rather than targeting specific therapeutic segments.

   Partly answered.

8. 8. H2 growth outlook and export mix

   Maulik, B&K Securities

   Question. H1 grew around 9% versus the 10-12% FY26 guidance. Will H2 make up the gap to achieve full-year guidance? Domestic contribution rose to 76% in H1 from 74% in Q1. What is the strategy to improve export contribution, which you earlier said would help pricing?

   Answer, Abhay Raj Singh, Senior Vice President and Company Secretary. We acknowledge H1 came in slightly below the 10-12% target. For H2 we are hopeful of achieving 10-12% growth from the current base; the full year may be slightly short but close to the range. The domestic share increased because paracetamol capacity utilization rose and IOL's domestic supply grew; in value terms, exports were largely flat. A lot of development work is underway and we are optimistic that non-Ibuprofen export sales will rise this quarter and next.

   Partly answered.

9. 9. Land parcel progress and UK subsidiary rationale

   Ritik Shah, Capital Alpha

   Question. Can you provide an update on the land parcel acquired near the Chandigarh-Bathinda Highway? What is the strategic rationale behind incorporating IOL Pharmaxis UK Limited and how is this subsidiary expected to expand global reach in regulatory engagement, customer proximity and international presence?

   Answer, Rakesh Mahajan, Advisor. The Chandigarh-Bathinda land is in regulatory approval stage with some approvals received and 2-3 still in process; we expect all approvals within 2 quarters and remain on the 8-quarter schedule announced earlier. IOL Pharmaxis UK was incorporated to be closer to European customers, understand their requirements and serve them faster; the request came from various customers in the Europe zone. We will also explore other business opportunities and keep investors updated as the subsidiary develops.

10. 10. Pipeline progress, U.S. tariffs, employee costs, and U.S. export status

    Shaikh Mohamed, Individual Investor

    Question. On the Sitagliptin and Sartan patents received - how is progress on Sitagliptin commercialization and Sartan drugs like Olmesartan and Candesartan? What is the U.S. tariff impact on IOL? Employee benefit expenses rose ~INR5 cr and other expenses by INR10 cr; did you hire more employees? You earlier said Q2 is the weakest and Q4 the strongest - can we expect better quarters ahead? Which are the 9 drugs in the pipeline? Is the Apixaban patent filing genuine given it has not been commercialized? With U.S. FDA approval, what would the impact be? Are Metformin, Fenofibrate and Ibuprofen all being exported to the U.S.?

    Answer, Kushal Kumar Rana, Director Works. Sitagliptin is developed and CEP-granted but market price is unviable so we are not producing it commercially. Sartan products are progressing in the multiproduct facility and we will produce them as orders come. U.S. tariffs currently apply to branded products, not generics, so IOL is not impacted. Employee count is unchanged - the INR5-6 cr spike is from year-end variable pay and incentives front-loaded in Q2, which will not recur in Q3/Q4. We expect more profitable quarters ahead. Pipeline drugs are at R&D scale. Apixaban has been developed only up to pilot scale with no commercial production. U.S. FDA approval impact depends on actual commercial supply to U.S. customers over time, not an instant effect. We have approvals to export Metformin, Fenofibrate and Ibuprofen to the U.S. and to Europe, Brazil, Korea, Russia; Ibuprofen is being exported to the U.S. in small volumes currently.

11. 11. Long-term revenue and margin targets

    Ayesha Mandhane, Samsej Investment

    Question. What revenue are you targeting over the next 2-3 years, and how will the segment mix (pharma vs chemicals) evolve? Will EBITDA margin cross 15% as exports scale? Are there any key highlights for investors to know this quarter, and how should we see IOL over the coming years?

    Answer, Pardeep Khanna, Chief Financial Officer. We are targeting 10-15% revenue growth annually and hope to achieve this in the current year as well. EBITDA margin target is 13-14% with a 1-2% annual increase expected. Demand is stable and growing; paracetamol utilization should reach 65% next year from current 55-56%. For FY27, we are targeting INR2,600-2,700 cr revenue with EBITDA margin of 13-15%. There is no other particular news to share beyond what has already been discussed.

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